RDC wants insurer to cover legal costs

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Embroiled in costly court fights over its distribution of prescription painkillers, the Rochester Drug Co-operative Inc. is suing an insurer it accuses of reneging on a promise to cover legal bills.

Founded as drug-buying cooperative for independent area private pharmacies a century ago, RDC rose to annual sales of more than $1 billion, putting it among the country’s top 10 distributors of pharmaceuticals. 

Accused along with many of its industry peers of questionable practices that have fed the nation’s deadly opioid epidemic, RDC was singled out for criminal charges last April by federal prosecutors and the Drug Enforcement Agency. 

With the filing of the criminal case, federal prosecutors announced a deal under which RDC would admit wrongdoing, pay a $20 million fine and sign a consent decree calling on it to bring its controlled-substance program into compliance and keep it within bounds for five years. While that agreement figures in the insurance dispute, the $20 million payout is not the lawsuit’s focus. 

Exactly how many dollars are at stake in the insurance dispute is not clear. RDC maintains in court papers that so far it has laid out “hundreds of thousands of dollars” to pay for mounting legal costs. RDC’s court complaint, filed Jan. 10 in the federal Western District of New York’s Rochester Division, states the coverage limit of a policy inked with Chicago-based Hiscox Insurance Co. Inc. some three years ago as $6 million. At RDC’s request, U.S. District Judge Elizabeth Wolford this month put further proceedings in the case under seal. 

At issue in the insurance dispute are the costs of defending RDC against 29 civil lawsuits filed by various New York counties—including Monroe—that name it among more than a score of defendants alleged to have improperly promoted, sold or distributed prescription opioids such as OxyContin and Fentanyl. 

The individual county complaints mirror a lawsuit filed by New York Attorney General Letitia James in Suffolk County last March. 

The lead defendants in those cases are companies associated with Purdue Pharma L.P.,  a Stamford, Conn.-based drug company accused of sparking and feeding the U.S. opioid epidemic by heavily promoting use of OxyContin beginning in the mid-1990s. 

“The taproot of the opioid epidemic is easy to identify: OxyContin. In 1996, Purdue launched its ‘revolutionary’ new opioid drug with a nationwide marketing campaign that relied on deception and insider payoffs to overcome a long-established medical understanding that opioids posed a high risk of addiction and abuse, and should only be prescribed for short-term acute pain, cancer, or end-of-life care,” the court complaint filed by James charges. 

Also named as primary defendants in the New York suits are individual members of the Sackler family, a wealthy clan once celebrated for philanthropy and support of cultural institutions whose members founded and ran Purdue Pharma. 

After reaching a $270 million settlement with Oklahoma in April 2019 that left similar actions pending in dozens of other states, Purdue and a number of its affiliates in September filed Chapter 11 bankruptcy petitions in the Southern District of New York. 

As part of the company’s reorganization, Purdue announced a global settlement under which it agreed to surrender all of the company’s assets to create a $10 billion fund to help defray costs of the opioid epidemic. Critics have since noted that in advance of the announcement members of the Sackler clan had moved $1.6 billion from company coffers to offshore accounts. 

In RDC’s insurance dispute, RDC claims Hiscox backed out of the case after initially agreeing to cover RDC’s cost of defending itself against the 29 New York counties’ charges.  

According to RDC, for more than a year after the company filed its claim with Hiscox, the insurer raised no objections. To the contrary, RDC states in court papers, after reviewing a workup of the cases’ expected costs prepared by Allegaert, Berger & Vogel LLP, the law firm handling its defense in the New York cases, Hiscox even told RDC to have Allegaert, Berger send bills to Hiscox’s Chicago offices.   

In September, however, Hiscox changed its tune, claiming that the federal criminal charges RDC faced in April canceled the insurer’s obligation to cover the local pharmaceuticals distributor’s legal costs. 

Not so, object attorneys from Harter, Secrest & Emery LLP, the Rochester firm pressing RDC’s claim against Hiscox. The exception Hiscox cites to justify its decision to rescind coverage it agreed to earlier calls for RDC to have been convicted of a crime. But under the deferred prosecution agreement RDC struck with the feds last April, it has not been found guilty. And the deal calls for the criminal charges filed in April to be dismissed in five years if it has hewed to the consent decree’s terms over that span,

Four days after filing the insurance case, RDC issued a statement declaring that as of Jan. 14 it would no longer sell controlled substances, a move that would virtually assure its adherence to the consent decree’s terms.  

In a separate matter, RDC along with RDC CEO Joseph Brennan and Chief Financial Officer John Kinney faces a civil action filed by former RDC CEO Laurence Doud III. 

Doud, who headed RDC for more than 25 years, claims RDC wrongfully terminated him. Along with RDC’s former compliance officer, William Pietruszewski, he was hit federal drug trafficking charges as part of the April court action. Pietruszewski pleaded guilty. Doud awaits trial. The charges carry a maximum term of life. 

Doud claims in the civil action, which he filed in 2018 prior to being criminally charged, that Brennan and Kinney along with RDC board members threw him under the bus when RDC fell under federal scrutiny for opioid-sales irregularities.

In the version of events laid out in Doud’s court complaint, Brennan, Kinney and RDC board members falsely accused Doud of cutting a side deal with a specialty pharmacy whose dealings with RDC put RDC and the pharmacy under federal scrutiny. Federal authorities started scrutinizing RDC in 2013, Doud’s court action states. 

In 2015, RDC agreed to pay $360,000 to settle a federal civil action accusing it of misreporting controlled substance sales. 

Doud states that he stepped down as CEO in 2017, two years prior to his planned March 2019 retirement date, assuming an “emeritus” position as a consultant to the board and handing the company’s reins to Brennan.  

Initially filed in a Manhattan federal court and later transferred to Rochester, Doud’s complaint against RDC is on hold pending resolution of the federal criminal complaint in the Southern District of New York, where the case is slated to begin on May 4. 

“The Government will advise this court promptly as to the outcome of trial, or if there are any material developments in the SDNY criminal case in advance of trial,” U.S. Attorney Geoffrey Berman stated to U.S. District Judge Frank Geraci in a Jan. 13 filing.

Will Astor is Rochester Beacon senior writer.

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